Retail can’t get profits unless we scale up: Naina Lal Kidwai

Retail can’t get profits unless we scale up: Naina Lal Kidwai
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First Published: Tue, Jul 03 2007. 07 16 PM IST
Updated: Tue, Jul 03 2007. 07 16 PM IST
HSBC India general manager and chief executive officer Naina Lal Kidwai has just completed her first year in the top job with a 64% rise net profit to Rs846 crore in 2006-07. Widely recognized as an investment banker, first with ANZ Grindlays and then with Morgan Stanley in India, Kidwai, the first woman CEO in India’s private and foreign banking space, seems to be enjoying her role as a commercial banker. In a wide-ranging interview with Mint, Kidwai talked about HSBC’s India business plans, competition in retail banking and keeping her employees happy to get the maximum out of them. Edited excerpts:
Your consumer finance business seems to be growing very fast.
Our consumer finance business—HSBC Pragati Finance—is growing very well. Though it is one year old and we are still in the investing phase, we are writing 14,000 loans in a month. We concentrate on the typically non-HSBC client profile, like a municipal sweeper or a kiranawala (storekeeper), and the loan amount sanctioned is lower than Rs50,000. We have gone from being a top-end retail bank to a bank with a client profile across the spectrum in 23 cities across India offering loans from 47 branches. Our Pragati Finance outlets, usually located at regular branches, look and feel very different to make these consumers feel comfortable. We ensure that the credit sanctioning process is very stringent and interest rates can go up to as high as 45%. However, if the credit history of an individual is good for a year, rates begin to come down.
So, consumer finance business is the largest driver of growth for HSBC?
No. It still does not give us profits, largely because we are investing in infrastructure and the employees. The retail business cannot give us profits unless we scale up and we cannot do so with restrictions (on branch opening). The bulk of our profit comes from our traditional business segments such as corporate banking and treasury. In fact, a third of our profits come from treasury alone, and the balance comes from corporate banking. We are ploughing back profits into our retail business. Even though retail loans account for 50% of our total book of approximately Rs55,000 crore, it is still not the right volume to give us profits.
In that case, is the retail chase by Indian banks futile?
I don’t think so. In the long run, retail business will beco-me profitable. It takes three to five years from the time of investments. We are one of the most under-penetrated banking markets among all our emerging market peers. I think there is a huge opportunity for us.
With global scale and muscle, Barclays Bank and Deutsche Bank have appeared in the Indian retail space. How do you plan to compete?
Barclays Bank does not come close to our global scale. Unlike us, they are not among the top five banks in the world. It is not easy to run retail operations. If with 47 branches we are still sub-scale, how does a bank with one-and-a-half branches run retail operations? Deutsche Bank had an advantage because they managed to resurrect their old branch licences but, globally, it is not a retail bank. Deutsche Bank can borrow from its experience in one country—Germany and Barclays is not even as active in the retail space in its home country. At HSBC, we have the advantage of cherry-picking across regions for best practices in retail.
Your thoughts on 2009 when foreign banks may get a bigger play in India.
I don’t think there will be any big-bang opening up for foreign banks in 2009. The landscape has to change to give confidence to everyone. There is the big fear of an onslaught from foreign banks, but with only 7% of the market share of banks in India, nothing can happen overnight. I think that the feeling of competition is overplayed.
You are a stakeholder in private sector UTI Bank Ltd.
We did not do an acquisition of any sort. It was just a portfolio investment—a purchase from a private equity shareholder. We have brought down our stake from 14% to 5% and made huge profits. This is not reflected in our Indian book as the investment was made from our global book.
Your outlook on business in India?
We have been in mortgages for two years and right now it’s 26% of our book. We are issuers of 2.5 million credit cards and among the top five issuers in the country. Our business outlook is very positive. We will grow as the country and its economy grow. We benefit from not only the growth of the economy, but also the confidence and feel-good factor that is being exuded by the young population. What is not a well-known fact is that we also benefit from the equity markets.
We are a major player in the custody business of foreign institutional investors (FIIs) and 45-50% of FII money that comes to India is sub-custody with us.
We also manage $11 billion through domestic asset management and offshore funds invested in India. We are bankers for acquisition financing for all large corporate names such as the Tata group and the Reliance group.
Now we have also supported ambitions of the middle market—the small and medium enterprises. Our strongest platform is trade. We do 5% of the country’s entire trade and we continue to strengthen this platform.
Is being a woman CEO an advantage?
I don’t think it makes a difference. At this level, it’s just how good or bad you are at your work. I like people management, so that works as an advantage.
You are going beyond banking to retain people. For instance, you have recently introduced a five-day week. Tell us about work culture at HSBC India.
It’s much more than retaining people. We are fair paymasters and not placed at the top of the line. But even then we don’t face attrition at higher levels. We have very aggressive way of engaging our employees. People tell us everything that they are unhappy about. I have set up a team of 80 people and split the teams across the country. This team came back and gave us brilliant ideas to maintain work-life balance. The employees spoke about long working hours and so we introduced a five-day week schedule. We also started things like salsa classes and yoga classes as was suggested by our team members. We have a young group and we give them opportunities to express themselves.
You are possibly a rare case (in the Indian context) of migrating from investment banking to a commercial banking. How easy has the transition been?
I had done five years of retail banking with Grindlays Bank and many of that team are here with me now. Before coming to HSBC, I was with JM Morgan Stanley as an investment banker. I have always enjoyed the people management aspect of commercial banking. Not every investment banker has an interest in team management. There people work like islands and deals are their biggest drive. My biggest challenge has always been leadership in team management and I thoroughly enjoy that role.
What is the key driving factor for HSBC India now?
Our biggest driver in India is a fabulous team—be it in our retail bank, corporate bank or treasury. We are easily the best on the street today. Our team members are all well honed in the HSBC culture, and on an average, each of them has spent over 10 years with HSBC. They bring with them their experience and capabilities. We are bringing in international best practices to India. We cut across regions and use our expertise across geographies.
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First Published: Tue, Jul 03 2007. 07 16 PM IST
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